Q. I have worried myself silly about not having enough in retirement. I’ve been told that I would need roughly $2.5 million to even consider retirement. Here’s our basic info. I’m 62; my wife is 60. I earn $125,000 and have contributed the maximum into Social Security for the past several years. I currently have $415,000 in my 401(k) plan, owe $72,000 on a mortgage ($225,000 value home), have $25,000 in IRA accounts, have $40,000 in passbook savings, and have $36,000 in a limited partnership.

I’m in relatively good health but had bypass surgery 8 years ago. My wife has Type 2 diabetes. My mother is still alive and in fairly good health at 92; my dad died at 79. Based on this, I estimate my life expectancy to be 85 years, or less.

By my calculations, the combination of Social Security and 4 percent withdrawals from the 401(k) plan will provide about $52,800 a year. If the 401(k) plan grows significantly between now and retirement at 66, the income will be still closer to my current net income of $74,600 a year. Based on this information, will I be able to retire at age 66? ---D.W., by email

A. You'll be able to retire at 66. You'll need way less than $2.5 million. And that's a good thing because with $516,000 in financial assets at age 62, getting to $2.5 million in 4 years would be virtually impossible.

What you've got ahead of you is a careful exercise in lining up the railroad tracks. You want to make sure the track of your expenses (including income taxes) in retirement can join your living expenses leading up to retirement.

Otherwise, your life-train goes off the tracks.

Your $74,600 take-home pay--- after all deductions---is a good starting place. You may be able to reduce that amount still further in retirement by planning to pay off your home mortgage or refinancing it to a lower rate and a new 30-year term. You can also reduce your retirement needs by your estimate of what it costs you to work.

You'll have a good running start from Social Security. According to www.ssa.gov, the maximum Social Security retirement benefit for a 66-year-old is $2,323 a month. A spouse who retires at age 64 would be entitled to $929 a month. So you'll have about $39,000 of current purchasing power if you retire at age 66. (Here's a link to the information: http://www.socialsecurity.gov/retire2/retirechart.htm. )

Your investments will need to replace about $35,600 a year, plus any income taxes. Based on estimated income taxes of $5,000--- including taxation of about $29,000 of your Social Security benefits--- you would need about $40,000 of income from your retirement savings. That, in turn, would require about $1 million at a conservative 4 percent withdrawal rate, or $800,000 at a less conservative 5 percent withdrawal rate.

Will you make it? Probably not. Assuming that you save $15,000 a year in a 401(k) plan and earn 6 percent on it and your existing savings, you'd accumulate about $700,000. You can cover the shortfall by a combination of these steps:

  • delay retirement by a year
  • move to a lower-cost house with no mortgage debt
  • aggressively reduce your living expenses and save more.

And remember this: You are in better shape than most people.

Q. I read an article some time ago proposing to replace the income tax with a national sales tax. The tax would raise revenue when money is spent rather than earned. Can you tell me where I might find a copy of this proposal? ---J. A., by email, from San Antonio, TX

A. The primary advocate for a national sales tax is the FairTax organization, www.fairtax.org. You can read about it on their website. You can also read "The FairTax Book: Saying Goodbye to the Income Tax and the IRS" by Neal Boortz and John Linder (HarperCollins, $15). This is an idea whose time has come. Under the evolving tax system we are fast approaching a time when a majority of all citizens will have an effective tax rate of zero. Except you and me, of course.

A graduated tax system is one thing; a free lunch system is another.